Why Alternative Deliveries Will Power Next Latam E-Commerce PhaseBy Ivan Ariza | Tue, 03/15/2022 - 11:00
An expanding middle class, whirlwind digitization, COVID-19 restrictions: conditions have been perfect for the rapid growth of e-commerce in Latin America. Our region is the most important last-mile delivery growth market in the world right now – with e-commerce growing by 37 percent to $85 billion in 2020 – and there’s still significant room for expansion.
But where customers in more mature markets use credit and debit cards to pay for their online purchases, as well as digital and mobile wallets, many of our populations do not. Or rather, they cannot. Nearly half of Latin America’s population (650 million) is “unbanked,” meaning they cannot purchase goods online by traditional means. As a result, a significant portion of the continental population faces digital and financial barriers to entry.
Successfully serving this market translates into hundreds of millions of potential new customers – and this fact is not lost on regional e-commerce operators. Digital-first disruptors like Colombia’s Rappi, for example, are now starting to serve the population with alternative delivery methods. From paying with cash to "buy now, pay later" instruments, the market is banking on delivery workarounds to power the next phase of Latin America’s e-commerce evolution.
The State of Latam E-Commerce
Many factors make Latin America an enviable market. We count a large and young population (median age of 31) and few language barriers inside the region. We’re also growing, especially in the middle class. For example, Latin America’s gross domestic product per capita is US$15,000, on par with China and ahead of India.
Yet, despite being the single-fastest-growing e-commerce market on the planet, not everyone can join the e-commerce revolution. In Mexico, about one-third (40 percent) of the 131 million population doesn’t have a bank account, meaning that the majority of Mexicans have no checking, savings or mobile money provider accounts.
This results in difficulties for both consumers and those who serve them. Since vast swathes of the continent do not use traditional financial products, there are limited (if any) ways to digitally pay for goods or services. Options are also few and far between for shoppers to pay for digital products with cash. Latin America, therefore, faces some of the world’s highest shopping cart abandonment rates.
Slow to Embrace Banks, Quick to Go Digital
While much of the continent is slow to embrace banks, we are quick to go digital. About 70 percent of the population now owns a smartphone and, by 2025, 80 percent of internet connections across the region will come from a mobile device. And, with more smartphones than people in both Mexico and Ecuador, fintech is entering the market.
Financial technology providers are more often developing digital products that bridge the bankless gap in Latin America. At last count, more than 1,000 fintech startups were operating in the region, with many encouraging adoption by designing products that do not require access to a bank account. As a result, scores more people can overcome their lack of banking at the click of a button.
This concept to bypass banking is proving transformative in e-commerce. Now, some operators are offering cash payment upon delivery, zero cost shipping, and "buy now, pay later" instruments connected with logistics. For the first time, businesses are implementing alternative delivery methods to serve the wider population, which could be instrumental to e-commerce expansion in the coming years.
How Alternative Delivery Boosts E-Commerce
Confined indoors during the pandemic, many consumers in Latin America found the web a safe way to make purchases and payments. In 2020, Latin American e-commerce sales were estimated to amount to approximately US$85 billion, nearly 35 percent more than reported in the previous year. In fact, more than 10 million people made their first-ever online purchase in 2020. The level of adoption has been impressive, but now it is up to e-commerce operators to go one step further and ensure that all consumers are included in the evolution.
According to forecasts, e-commerce across the continent will rise to about US$160 billion by 2025. That's right, in just five years, the market will almost double. However, achieving this will depend on offering a variety of solutions with the option to easily and safely pay on delivery. For example, a recent study revealed that Mexican shoppers who have not yet chosen digital channels would do so if several concerns were resolved, especially surrounding security and payment.
In addition to e-commerce’s long-term growth, it is important to consider the humanitarian benefit of alternative delivery methods. While many enjoyed e-commerce’s contactless benefits in the early days of the pandemic, those without access to digital payments were not granted the same luxury. Now, looking ahead with high smartphone penetration, the emergence of fintech, and the rise of e-commerce, the region is undergoing a digital transformation that will reverberate for years to come. It is integral that all members of our society are included in the shift.
For e-commerce, this moment demands the implementation of flexible delivery and checkout options. Done effectively, hundreds of millions of new customers will come into the fold and power the continent’s next phase of e-commerce growth. Watch this space.